The Monetary Policy Committee (MPC) of the central bank is set to review the Monetary Policy Rate (MPR), on Friday January 20, 2017, with the prime objective of ensuring price stability and low inflation to curtail the depreciation of the cedi and support output and employment growth.
The MPR was pegged at 26% for most part of 2016, amid calls by the business community for a lower rate because of the devastating effects of the high rate on the domestic economy. The reasons given by the central bank were fall in world commodity prices, high energy costs associated with the power crisis, capital outflows due to the increase in US key policy rate, quarterly adjustment in utility tariffs and the pass-through effect of the cedi depreciation.
However, during the last MPC meeting in November 2016, the central bank reduced the policy rate by 50 basis point to 25.5%. The bank noted strong external sector performance, improved business and consumer sentiments, stability in the foreign exchange market and easing downwards of inflation trends in line with forecasts, alongside subdued underlying inflation for its decision to reduce the rate.
At the global level, low commodity prices, low growth in China, the uncertainty in the Euro zone due to Brexit and its impact on output growth of developing countries including Ghana in 2016, is expected to continue in 2017.
On the domestic market, recent statistics published by the BOG indicates that growth in total liquidity declined to 20.53% in August 2016, marking a slowdown from 25.57% recorded by the same time in 2015. Consequently, inflation has declined since October 2016, ending the year at 15.4% as against 17.7% recorded at the close of 2015. This is still high given the single digit medium term inflation target. Also, the cedi depreciation against the major trading currencies may be a reflection of declining reserves at the central bank and signal upside risks in the immediate future.
Given, that the central bank reduced the policy rate only once for the past 12 months, coupled with the recent increase in petroleum prices and the IMF’s stance on Ghana’s monetary policy, it is very evident that the MPC will vote to maintain the monetary policy rate at 25.5%, come Friday, January 20, 2017.
Figure 1: Monetary Policy Rate & Inflation Rate (%)
Source: Bank of Ghana, Ghana Statistical Service & GN Research
Figure 2: Monetary Policy Rate & Percentage Growth in Total Liquidity (%)
Source: Bank of Ghana, Ghana Statistical Service & GN Research
Figure 3: Inflation & Percentage Growth in Total Liquidity (%)
Source: Bank of Ghana, Ghana Statistical Service & GN Research
Credit: GN Research
